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Shares of online food delivery service GrubHub (GRUB) are up $2.80, or 7.5%, at $40.23, after the company this morning reported Q4 revenue and profit per share that topped analysts’ expectations and forecast this quarter higher and the year’s results as well.

Revenue in the three months ended in December rose almost 50%, year over year, to $73.3 million, yielding EPS of 13 cents.

Analysts had been modeling $70 million and 11 cents.

Adjusted Ebitda of $25 million was above the Street’s $21 million.

Among the company’s metrics, so-called active diners rose 47% to 5 million, while “daily average grubs,” a measure of the meals that GruHub sends to restaurants, rose 33% to 202,700.

Food sales topped half a billion, up 37%, the company said.

CEO Matt Maloney said the company ended the year with “strong growth momentum” thanks to “seasonally favorable conditions.”

For the current quarter, the company sees revenue of $83 million to $85 million, above consensus for $80 million.

For the full year, the company sees revenue of $335 million to $350 million, above consensus of $326 million.

In a note to clients this morning, William Blair’s Ralph Schackart reiterates an Outperform rating, calling the results “solid” and calling the user growth “strong.”

It seems the only blemish was the company’s cut of transactions: “Commission rate below of expectations. GrubHub’s reported commission rate was 14.43%, lower than the StreetAccount consensus estimate of 14.50% and our model of 14.65%.”

It may be the end of an era, as Radio Shack (RSH) heads toward delisting and possible bankruptcy, as related yesterday by The Wall Street Journal’s Tess Stynes.

The speculation today, however, is that Amazon.com (AMZN) might buy out some of those retail outlets.

Bloomberg’s Katie Benner, JodiXu Klein, Lauren Coleman-Lochnerlate yesterday wrote that Amazon has held discussions about buying some locations, citing two anonymous sources.

On CNBC this morning to discuss the speculation about Amazon was Bob Peck of SunTrust Robinson Humphrey, who is upbeat on the thought of Amazon buying some stores.

Said Peck,

We wrote back in September that Amazon should be interested in taking over some of the leases. And there’s two reasons. One, we could see them demo some of their own products, the FireTV or Prime streaming service. But the other big key part is that at the end of the day, Amazon is a logistics company, this could help them with distribution, with same-day delivery, and help them push farther and farther into local commerce.

Asked if Amazon would keep the brand, Peck said “We would guess they would rebrand and make them more of a distribution center.”

Expanding on the theme of local commerce, Peck envisioned Amazon having “the top 100 items in the store, and you walk in, in the morning, and then they ship it to your home, and it’s waiting for you when you get home at the end of the day.”

Asked how many locations Amazon might want to pick up, Peck said “at least a couple hundred, perhaps up to a 1,000 or so.”

Peck said outlets locally would help Amazon in urban areas to augment its food initiatives, “Amazon Fresh,” and its “Local” deals service.

He added, “Think about the lift to the [Amazon] ecosystem to customize this, perhaps supplying snow shovels in the Northeast and suntan lotion in the South.”

Asked by host Sarah Eisen if a move into retail might be Amazon’s “Waterloo,” Peck replied, “I don’t think so. They would be coming in here at low cost, not buying the company. What they’ve done so far you’ve see them really test and see what the returns have been.”

Asked by Eisen whether Amazon might be helped on the cost front by having local presence, Peck cast cold water on the notion:

We still think there’s a lot of cost in front of Amazon. Especially as they expand internationally. If you think about the density of capex in US, they’ve said they’ll continue to spend against these large TAMs [addressable markets]. They always show you proof of when they pull back what the margins can do, they will continue to tease with that.

RadioShack’s last quote was 24 cents, after a 90% fall in the last 12 months, and a 35% plunge just this year.

Shares of Amazon.com (AMZN) are surging, up $36.14, or almost 12%, at $347.92, after the company yesterday afternoon reported a much-higher-than-expected Q4 profit per share despite sales coming in slightly below expectations.

The stock’s rise comes despite the fact the forecast for this quarter’s revenue is lower by a billion dollars, and the company is forecasting a loss of as much as $450 million versus Street expectations for an operating profit of $130 million.

But the big focus today is the higher operating profit, called “consolidated segment operating income,” or CSOI, which rose 18%, faster than the 15% rise in revenue, and was 3.5% of revenue at $1.04 billion.

That, and what the Street views as a new “messaging” about profitability that may be less brutal, more positive.

For example, Tom Szkutak, CFO, noted that “the teams are putting even more energy and attention on driving what we would call fixed expense and variable expense productivity, as well as other efficiency projects.”

Among the factors helping profitability was the fact that fulfillment costs in the quarter stayed roughly flat at 11.3% of revenue even though revenue rose by 15%.

Another positive in the quarter was 53% growth in paid members to the company’s “Prime” membership service. Szkutak said growth was even faster overseas than it was domestically. That came despite the fact that the company actually raised the price of Prime last year.

Analysts also like that the company said this quarter it will start to report separately the revenue for its cloud computing division, Amazon Web Services.

There are no ratings changes yet, that I can see, but price targets are zooming left and right.

Bullish!

Stephen Ju, Credit Suisse: Reiterates an Outperform rating, and raises his price target to $410 from $389. “Higher than expected CSOI dollars on moderating shipping losses this quarter served as confirmatory data points on our ‘return to normalcy’ investment thesis for 2015, which is starting to play out. And we believe AMZN will continue to reap the margin benefits from fulfillment center maturation and shipping fee savings from its expanded footprint as this is not just a one-quarter dynamic. AMZN also disclosed that it will begin showing AWS as a separate operating segment in 1Q15 – which will motivate investors to refocus on Amazon’s expanding core retail gross profit margins on the aforementioned FC maturation and rapid growth of paying Prime members (up 53% YOY).”

Victor Anthony, Topeka Capital Markets: Reiterates a Buy rating, and raises his price target to $410 from $350. “Gross margins expanded by 302bps, the largest increase since 4Q12, off course aided the accounting for AWS, but also driven by growth of third party units, which AMZN noted is growing faster than first party. Also positive given that the video content spend of $1.3B in 2014 is within COGS; EBITDA margins expanded by 149bps to 8.7% and pro-forma operating margins expanded by 60bps to 4.0%. Worldwide Prime memberships jumped 53% YoY in 2014, with growth of 50% YoY in the U.S. and faster growth internationally. Impressive, given the price increase earlier in the year, which is serving to offset, partially, the cost of video content spend. By the way, video content is serving as an effective customer acquisition tool for Prime. But we wonder, given the successes of recent programming at award shows and Amazon Studios producing and acquiring movies for theatrical release, if Prime Instant Video could be offered as a standalone service to consumers.”

Robert Peck, SunTrust Robinson Humphrey: Reiterates a Buy rating, and raises his price target to $370 from $360. “Gross profits grew 28%; with record gross margins of 29.5% actually rising in the quarter vs. traditional seasonality. Ex. Other gross margins also expanded Q/Q on the strength of 3P sellers, FBA, and a more efficient network. N. American operating margin of 5.4% is the best in 3yrs and beat estimates, “proving” the model can work – management discussed a focus on expense “efficiency”; Prime users up 53% Y/Y with the additions of video providing a positive lift to retention and conversion; Media growth was 0% – there are both comp issues and structural issues at play – but largely speaking the comps issues begin to ease in 2Q. Comps ease in 2Q and beyond – both the AWS price cuts and Japanese tax increase occurred in April, hurting comps for 2H of 2014. Total Rev growth of 18% ex Fx at high end of guidance; 3P sellers accounted for 43% of units and unit growth was 20%.”

Daniel Kurnos, The Benchmark Company: Reiterates a Buy rating, and raises his price target to $425 from $350. “The bulk of the revenue shortfall came from International, reflecting a negative $895 million FX impact along with moderating growth, while North America was predominantly in line with expectations. Investors continue to “forgive” companies impacted by the weaker Euro and softening Eurozone economic conditions, and we suspect that, while revenue forecasts may come down, Amazon may receive the benefit of the doubt for more modest top-line growth due to international softness through at least 1H15. Amazon engagement metrics including 53% y/y growth in paid Prime membership in 2014 and 65% growth in sellers using FBA are also likely to contribute to a more positive long-term view despite a modest q/q and y/y deceleration in paid unit growth to 20% from 21% in 3Q14 and 25% in 4Q13, respectively.”

Bearish!

Scott Tilghman, B. Riley & Co.: Reiterates a Neutral rating, but raises his price target to $312 from $296. “AMZN shares were up mid-single-digits after the earnings announcement and subsequently jumped to over 12% after the reported disclosure enhancement. (We continue to believe that separating AWS from Amazon would be difficult, which in turn would make SOTP analysis moot offsetting potentially higher valuation for that segment on a standalone basis.) 4Q operating profit of $591 million handily beat our and consensus estimates and even company guidance. But, we aren’t convinced the company has the same leverage opportunity in non-holiday quarters, and this seems to be captured in its 1Q guidance, which assumes bigger FX headwinds and lower Y/Y profit. We are adjusting our FY15 estimates downward reflecting near-term currency headwinds and still elevated costs.”

Eric Sheridan, UBS: Reiterates a Neutral rating, but raises his price target to $355 from $325. “We have been on the sidelines on Amazon given we had low expectation for either a revenue reacceleration or margin relief in the near-term. Between the Q4 results and Q1 company guide, we seem to be correct about revenues but the near-term margin “relief” has given investors a reason to cheer Amazon in the after-hours (+~13%). Going forward, we remain concerned about the heavy investment cycle (China, India, media content, last mile delivery, category expansion) and look toward future quarters to see if this margin relief is a “look thru quarter” (as Amazon has done every few years) or a permanently higher margin run-rate.”

Michael Graham, Canaccord Genuity: Reiterates a Hold rating, but raises his price target to $330 from $300. “While Q1 top line guidance is sluggish, management’s cautiously positive attitude toward taking a harder look at costs should help stock sentiment in the short term [...] N. America operating margin expanded to 5.4% from 4.7% in Q4/13, while international margin was ~0% due to investing in emerging markets. Management appears to be growing slowly more constructive on margins, building on positive comments from Q3 by saying that the 2015 planning process would be marked by “fixed expense and variable expense productivity.” This is encouraging, despite Q1 guidance of another essentially break-even quarter.”

Amazon.com (AMZN) this afternoon reported Q4 revenue that missed analysts’ estimates, and earnings per share that blew away expectations as operating profit came in much higher than expected.

The forecast, however, was below analyst’s consensus.

Revenue in the three months ended in December rose to $29.33 billion, yielding EPS of 45 cents.

Analysts had been modeling $29.65 billion and 18 cents per share.

Operating income was $591 million, well above consensus for $193 million.

For the current quarter, the company sees revenue of $20.9 billion to $22.9 billion, and ooperating income ranging from a loss of $450 million to profit of $50 million. That compares to consensus for revenue of $23 billion and operating income of $130 million.

Shares of Yahoo! (YHOO) are down $2.66, or almost 6%, at $43.80, after Alibaba Group Holding (BABA), the e-commerce giant in which Yahoo! holds a 15% stake, this morning reported Q4 revenue that missed analysts’ expectations, as my colleague Shuli Ren chronicled.

Alibaba shares on NYSE are down $8.77, or almost 9%, at $89.68.

Given that Yahoo!’s CEO, Marissa Mayer, on Tuesday dazzled the Street with the announcement of a plan to spin out that 15% stake, Yahoo!’s future is obviously tied for the moment to how Alibaba does.

There has already been one cut in rating for Yahoo!, as Shuli notes, by Stifel Nicolaus’s George Askew, who cut his rating this morning to Hold from Buy, citing lower “monetization rates” for the company.

So what do you do with Yahoo! stock? Well, Laura Martin of Needham & Co. has created a stir today, writing in a note to clients this morning that Alibaba or another party could consider buying Yahoo! because it would be the cheapest way to get ahold of Alibaba’s own shares — or another party that wanted that big chunk could buy Yahoo!:

Our understanding of Spin-Co tax restrictions is that Spin-Co must remain outstanding for at least 2 years or the $14 billion of tax savings could be nullified by the IRS. Going into the open market to buy 16% of BABA’s shares would require paying a premium. In our view, any company (including BABA) that might buy YHOO today would be getting the core business for “free” and, after spinning off YHOO Japan and the core business, we believe it could potentially purchase 16% of BABA at a discount. YHOO owns about 16% of BABA shares, and in our view Spin-Co will create a near- perfect substitute to the BABA shares in the marketplace. If the discount gets too big between the 2 entities, traders may likely sell BABA shares short and buy Spin-Co to close the gap. Therefore, it follows that if BABA (or any company) wants YHOO’s BABA shares, it would have to buy YHOO before Sept 2015 (the planned spin date) or wait 2-3 years. If any company thinks BABA shares will rise over the next 3 years, we believe that buying YHOO could be seen as the cheapest way to buy them.

Following Martin’s report, however, CNBC’s Kayla Tausche said on air that sources are saying that Alibaba has not retained advisors for a Yahoo! takeover.

Also today, Angela Moh of Morgan Stanley writes that Alibaba has to think about what it’s going to do as the spin-off approaches:

Our expectation at this point is that Alibaba probably takes no immediate action post the Spin Co transaction. That assumption does hinge on our belief that Alibaba in all likelihood expected Yahoo’s move, and will be involved in the creation and strategic direction of Spin Co. However, the many uncertainties that this transaction introduces could force Alibaba’s management to weigh its options of becoming more involved with the Spin Co in the future. We await further response from Alibaba management regarding this transaction tonight during its earnings conference call.

Shares of Yahoo! (YHOO) are up 40 cents, or 0.8%, at $49.35, in advance of tomorrow afternoon’s Q4 report, after the closing bell, which is being billed by some as a “moment of truth” for CEO Marissa Mayer.

The company has said that by the time of this quarterly report, it would tell investors its intentions about its asian assets, including its $34 billion, 24% stake in Alibaba Group Holding (BABA).

The Street is modeling $1.19 billion in revenue for the quarter, $336 million in Ebitda, and 29 cents EPS.

The company’s own forecasting is for $1.14 billion to $1.18 billion in revenue and $340 million to $380 million in Ebitda.

Addressing the Alibaba matter, MKM Partners’s derivatives strategist, Jim Strugger, citing work of his colleague Rob Sanderson, notes that “the difference between a fully-taxed and tax-free transaction is around $16 per share to YHOO,” with another $3 for the company’s stake in Yahoo! Japan, for a $19 spread to the share price.

Strugger concludes “A reasonable amount of uncertainty appears to be embedded in the options market.”

“One-month at-the-money implied volatility is at its highest level of the last few years heading into earnings (top graph) and a 7.7% move in the shares was being implied Friday, above the 4.9% historical 8-quarter average.”

He advises investors to sell January 30 strangles:

But with YHOO’s BABA shares locked up until September, a likely outcome Tuesday is an update on management’s thinking absent critical details such as the tax treatment of a distribution. For that reason, we like extracting short-dated premium via the sale of January 30 expiry 45.5/53 covered strangles at $1.17 to generate a 2.4% synthetic yield. The position commits to selling stock at the equivalent of $54.17, 10.7% above Friday’s close and getting longer at $44.33, 9.5% lower. If YHOO moves only moderately following this earnings event, we’d look to monetize the resulting implied volatility collapse fairly quickly given BABA’s 4Q14 earnings results expected Thursday morning.

FBR & Co.‘s William Bird, calling tomorrow’s report “hopefully, the great reveal,” reiterates an Outperform rating on Yahoo! stock, and a $56 price target, writing there is “positive risk/reward into the print, reasonable based on management’s constructive comments and low expectations for core Yahoo!”

He does his own back-of-the-envelope math for a tax-efficient treatment of Alibaba:

By the market-implied tax/illiquidity discount on Yahoo!’s Alibaba stake is still ~28%. Playing for $15. The delta in value between a fully taxed Alibaba stock sale and a tax-shielded transfer is ~$15/share. Every 10% tax rate deduction (e.g., from 35% to 25%) is worth $4 to YHOO’s stock price. Should a full tax shield be delivered, we would still expect some discount to the SOTPs based on time value and execution risk, with the shares accreting to full value over time.

Writes Anthony, “The plan to avoid tax leakage on the Asian assets will dominate interest on the call and is likely to serve as a meaningful catalyst for the stock.”

Anthony sees further declines in pricing of both search and display ads in the quarter:

We are estimating search revenue growth ex-TAC of 3% YoY, a deceleration from 5.5% in 3Q, on 15% growth in pricing offset by a decline in paid clicks, although we suspect paid clicks could come in stronger than we project. The signing of the Firefox deal has increased Yahoo’s search market share, per most third party search estimates [...] We are estimating display revenue growth -4% YoY (-6% YoY in 3Q) on a 20% growth in ads sold and a 23% decline in the pricing of ads. Declines in desktop traffic will continue to pressure display growth, however, native ads, video and mobile will continue to provide a partial offset.

Regarding Yahoo!’s Tumblr image blog service, which the company says should cross $100 million in revenue this year, Anthony writes “with the combination of video ads, which will be accelerated by the Brightroll acquisition, native, and search, we expect revenues to surpass guidance by a meaningful margin and again grow strongly in 2016.”

Citigroup‘s Mark May reiterates a Buy rating on the shares, and a $63 price target, writing that assuming a “spin-off likely occurs in 2H15″ for the Alibaba asset, which he does, “the focus this year will begin to return to core Yahoo!”

May thinks that “despite negative press coverage and consensus forecasts that call for only 2% net revenue growth (ex-FX) this year, we believe core Yahoo! is showing green shoots”:

While Yahoo!’s net ad rev growth has generally been flat- to-declining for the past few years, it has recently shown signs of improvement and we have identified four factors that should contribute to 6-9% net ad rev growth (ex 250bp FX headwind) in CY15: 1) mobile, which today makes up 20-25% of total advertising and should exceed 30% in 2H15, is growing 100% y/y; 2) net rev growth in N.A. reached +2% y/y in 3Q14, and both APAC and Europe are showing significant improvement; 3) the drag from desktop display revenue (which has been ~$60mn/quarter) should lessen as new ad formats (Stream Ads, video ads) continue to offset legacy premium display headwinds, and as desktop pageviews have stabilized; and 4) the recent acquisition of BrightRoll and the new search deal with Mozilla should add $63mn and $10mn, respectively, to net revenue in CY15. Our estimates now reflect the recent and significant FX headwinds, but do not factor in any benefit from a possible restructured search deal with Microsoft.

May raised his 2015 revenue estimate to $4.54 billion from $4.39 billion, and raised his 2016 estimates to $4.73 billion from $4.34 billion.

BGC Partners‘s Colin Gillis this afternoon raised his rating on share of Amazon.com (AMZN) to Buy from Hold after the closing bell, while keeping a $340 price target intact, writing that the thinks the company will show a return to profit, after two quarters of GAAP losses, when it reports the December quarter, which is scheduled to happen a week from tomorrow, January 29th.

Gillis lists among facts for improved profit a rise in the company’s “consolidated segment operating margin,” or CSOI, which will “bounce back” from 0.7% in Q3 to 4.2% in Q4, in part because of resolving the company’s dispute with publisher Hachette, Gillis believes.

Gillis also thinks the company’s margins will expand as it sells more digital media:

Longer term, we are positive on the Amazon approach to building an entire ecosystem optimized to delivering digital and physical goods. We have been an Amazon prime customer since 2006 and personally witnessed the scale of prime purchases of physical goods on the Amazon platform, and the expansion to digital content and music on Kindle Fire tablets. We see potential in the Amazon App store, and suport the strategy of delivering consumer hardware at cost to facilitate consumption. As digital media continues to grow and Amazon continues to introduce its prime members to its digital offerings, we expect media margins can continue to expand. We estimate Prime membership is 40 million worldwide.

Among other positive factors, he likes the potential for advertising revenue for Amazon, as the company uses “deep data” about consumer behavior; and he thinks Amazon can be “a single center of commerce” with its logistics facilities, its ability to make grocery offerings, and its proprietary hardware.

Gillis warns the stock has a high multiple, and that it has solved off after past reports:

We have heard investing in Amazon likened to swimming in the deep end of the pool given that the company has a market capitalization of $137 billion and was not profitable in the last two quarters. We also point out that Amazon has traded down by at least 8% after reporting earnings during the last four quarters. While we have historically been skeptical that Amazon was going to solve its shipping losses to produce an operating margin north of 5%, we now see enough signs of stabilization in shipping losses and maintain that the digital ecosystem has enough investment to be a force to help drive improved profitability. That said, investors should note that shares of Amazon are trading at 205x our 2015 earnings.

Amazon stock today closed up $7.81, or 2.7%, at $297.25, and is up 75 cents at $298 in late trading.

eBay (EBAY) this afternoon reported Q4 revenue that slightly missed analysts’ expectations, and profit per share that beat by a penny, and offered a lower-than-expected forecast for the current quarter and the full year.

The company said it will cut 2,400 employees as it seeks to streamline.

eBay shares declined 29 cents, or half a percent, to $53.09, in late trading.

Revenue in the three months ended in December rose to $4.92 billion, yielding EPS of 90 cents.

Analysts had, on average, been modeling $4.93 billion and 89 cents a share.

The PayPal unit’s total “payment volume” rose by 24%, the company said, bringing in PayPal revenue of $2.2 billion.

The company’s “Marketplaces” auction and retail operations saw its “gross merchandise volume” rise by 2%, and revenue rose to $2.3 billion, the company said. eBay noted ” Traffic was impacted by both the decline in new users due to SEO changes and the occasional buyer not returning to our site or being met with increased friction due to the password reset when they did come.”

eBay, which is splitting itself in two this year, said of its restructuring intention,

Looking forward to 2015, we will be simplifying organizational structures to focus the businesses and ensure that we are set-up to compete and win. During the first quarter, we plan to reduce our workforce globally by approximately 2,400 positions which a represents about 7% of our total workforce across eBay Marketplaces, PayPal, and eBay Enterprise. We will also be exploring strategic options for eBay Enterprise, including a sale or IPO. Enterprise is a strong business and a leading partner for large retailers, managing mission critical components of their e-commerce initiatives. However, it has become clear that it has limited synergies with either business and a separation will allow both to focus exclusively on their core markets, as we create two independent world class companies.

Separately, eBay said it reached a “standstill” agreement with Carl Icahn that will include eBay taking on Icahn executive Jonathan Christodoro to its board of directors.

For the current quarter, the company sees revenue of $4.35 billion to $4.45 billion, and EPS of 68 cents to 71 cents. That is below the average estimate of $4.7 billion and 76 cents.

For the full year, the company sees revenue of $18.6 billion to $19.1 billion, and EPS of $3.05 to $3.15. That is below the average estimate of $19.98 billion and $3.26.

Update: The shares have reversed course in the after-hours market and are now up $1.08, or 2%, at $54.40.

Shares of $1 billion market cap travel booker Orbitz Worldwide (OWW) were briefly halted on the New York Stock Exchange, and are now up almost 10%, following a Bloombergreport the company is a target of a potential take-out by private equity shops.

Bloomberg’s Alex Sherman and Matthew Campbell write that “the company is working with a financial advisor as it reaches out to potential buyers,” citing multiple unnamed sources. The authors note Orbitz was part of Travelport Ltd. in 2006 when that entity was bought by Blackstone Group.

Shares of some other bookers are rising: Priceline (PCLN) is up $11.23, or 1%, at $1,019.45; TripAdvisor (TRIP) is up 58 cents, or 0.9%, at $68.76; Travelzoo (TZOO) is up 44 cents, or 4%, at $11.22.

In a note today titled “The Sun Will Come Out Tomorrow,” Citigroup analyst Mark May raised his rating on Amazon.com (AMZN) to Buy from Neutral, and raised his price target to $354 from $325, writing that the stock has support at $300 and that he sees the prospect for margin expansion this year.

The crux of May’s analysis is to urge investors to look at earnings before interest, taxes and depreciation and amortization rather than the more common profit metric for the company, “consolidated segment operating income” or CSOI, which he doesn’t think fairly reflects the business.

May starts by noting the valuation is roughly in line with retail peers Wal-Mart Stores (WMT) and Costco (COST), writes May:

At current price levels, we estimate Amazon’s retail business is trading at the traditional retailer average of 0.7x out-year GMV (this group includes WMT, TGT and COST), while its AWS/Other business is trading ~5.6x 2015 revenue versus its comp-set average of 6.8x. This is despite both businesses having dominant market positions in their respective categories and are growing well above the industry average (AMZN’s retail business is forecast to grow 15% in 2015 versus the 4% industry average, while AWS/Other is slated to grow 35% versus its comp-group at 23%). With this considered, we believe the downside risk to shares materially below the $300 level is limited.

To this who think Amazon shouldn’t get as high a multiple as Wal-Mart because Amazon’s profit margin is so low, May writes that Amazon has had higher margins in past:

However, we point out that prior to Amazon’s decision to accelerate investment in AWS and international operations in the 2011 timeframe that total company CSOI margins were in the 6% range, which is above that of the traditional retail comps despite Amazon’s faster growth.

Moreover, CSOI actually under-reports profit, he believes:

Moreover, near-term growth in CSOI may not accurately reflect the underlying growth in the business. If you agree with this view and believe capex (and therefore depreciation) is likely to stabilize in the current 5-6% of revenue level, looking at Amazon’s multiple on an EV/EBITDA basis relative to the growth in EBITDA may provide a better assessment of valuation. On this basis, Amazon currently trades at an EBITDA PEG of 0.45.

As far as growth, because Amazon is a mix of different kinds of sales — its own merchandising, plus third-party, plus the “Amazon Web Services,” or AWS, sales, he thinks focusing on revenue growth is not sensible; instead, May urges investors to look to gross profit growth, which remains higher than its cooling revenue growth.

Here’s the infographic May uses to illustrate the comparison:

May thinks investors should look past the big step-up in investment that spooked them in 2014 and focus on how that gross profit is still growing and how it could boost ebitda:

Notwithstanding these factors, we estimate the company was still able to grow retail gross profit 25% in 2014, and while we do not assume any of these issues to wholly subside in 2015, we do not expect them to worsen. As a result, we believe Amazon should continue to achieve strong gross margin improvement on both a consolidated and retail basis. With the issues from 2014 seemingly largely appreciated by the investment community and (we believe) represented in current financials, Amazon’s strong GP expansion should help re-accelerate AMZN’s operating margins in 2015. All considered, we see the company expanding EBITDA margin to its highest level in >10 years.

While CSOI margin may be 1.7% this year, up from 1.3% last year, he thinks Ebitda margin will be 8.2%, rather than 6.7% last year.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.